One of the Justice Dept.'s most serious charges against Microsoft is that the company illegally tries to divide markets with competitors -- and on Feb. 16 the government offered an explosive new piece of evidence to support this claim.

In a March 26, 1990, E-mail to CEO William H. Gates III, Microsoft's Mike Slade describes how he proposed carving up the market for financial-services software with Intuit a few days earlier. The proposal came at a meeting in which Slade and two other Microsoft employees visited Intuit's headquarters in Menlo Park, Calif., to "explore ways in which we could work together," Slade wrote in the E-mail. The evidence was admitted during the testimony of Microsoft Vice-President Brad Chase, who was one of the recipients of the message.

In his long report, Slade says he told Intuit executives that it would be destructive for the two companies to compete. Instead, he proposed that they make a deal: Intuit would develop financial-services software for the DOS and Apple Macintosh operating systems, while Mirosoft did so for Windows.

"I positioned this proposal like this," wrote Slade (capitals and wording his), "WE'D RATHER NOT COMPETE WITH YOU. INSTEAD OF GROWING THE MARKET, WE'D BOTH JUST SPEND A LOT OF $ FIGHTING EACH OTHER FOR SHARE. SO HOW ABOUT THIS? You guys continue to do a great job on DOS and Mac. We're investing in a line of Windows sm biz/home products anyway, so we'll just round out the line and together we'll grow the business."

TRIAL "BY SNIPPET." David Boies, the Justice's Dept.'s lead trial lawyer, said this E-mail proves that Microsoft has a pattern of trying to divide markets. Earlier in the trial, the goverment offered evidence that Microsoft made similar market-division proposals to Netscape, Apple, and Intel.

But it's unclear how damaging the E-mail will be. At the time Slade wrote it, Microsoft's Windows still had not gained dominance of the desktop market -- a factor that would make any threats to other companies less worrisome. Moreover, Intuit never acted on the proposal. Accusing the government of trial "by snippet," Microsoft's William Neukom, senior vice-president for law and corporate affairs, said the E-mail made good "rhetoric" but was irrelevant. The type of statement that Slade made to Intuit "happens in American business many times a day, every day of the year," Neukom said.

Microsoft spokesperson Mark Murray also attacked the credibility of the document, noting that it was written nearly a decade ago and that there's no other corroborating evidence that a market-division proposal was made. A Justice spokesperson declined to say if the government would offer any further testimony on the matter.

The trial will continue on Wednesday, Feb. 17, with the redirect examination of Microsoft's Chase in the morning. He will then be followed by John Rose, a senior vice-president at Compaq Computer Corp.

By Mike France in Washington